Business

Research Methods

William G. Zikmund

Chapter 3:
Theory Building
 Theories
A theory consists of a coherent set of general propositions that offer an
explanation of some phenomena by describing the way other things
correspond to this phenomena.

Put another way, a theory is a formal, testable explanation of some

events that includes explanations of how things relate to one another.

For example, if a Web designer is trying to decide what color background

is most effective in increasing online sales, he may first consult previous
studies examining the effects of color on package design and retail store
design. He may also find theories that deal with the wavelength of
different colors, affective response to colors, or those that explain retail
atmospherics. This may lead to the specific prediction
that blue is the most effective background color for a Web site.
 Two Purposes Of Theory
• Prediction
• Understanding
 Concept (or Construct)
A concept or construct is a generalized idea about a class of
objects, attributes, occurrences, or processes that has been
given a name.
Concepts are the building blocks of theory.
•In organizational theory, leadership, productivity, and
morale are concepts.
•In the theory of finance, gross national product, risk
aversion, and inflation are frequently used concepts.
•Accounting concepts include assets, liabilities, and
depreciation.
•In marketing, customer satisfaction, market share, and
loyalty are important concepts.
 Scientific Business Researchers Operate at Two Levels
The basic or scientific business researcher operates at two levels: on the
abstract level of concepts (and propositions) and on the empirical level
of variables (and hypotheses).
At the empirical level, we “experience” reality—that is, we observe,
measure, or manipulate objects or events.
•For example, we commonly use the term job performance, but this is
an abstract term that can mean different things to different people or in
different situations. To move to the empirical level, we must more clearly
define this construct and identify actual measures that we can assess and
measure to represent job performance as shown in Exhibit 3.2.
•In research, we use the term latent construct to refer to a concept that is
not directly observable or measurable, but can be estimated through
proxy measures. Job performance, customer satisfaction, and risk
aversion are just three examples of the many latent constructs in business
research.
Scientific Business Researchers Operate at Two Levels
 Definitions
• Abstract level -In theory development, the level of
knowledge expressing a concept that exists only as
an idea or a quality apart from an object.

• Empirical level -Level of knowledge reflecting that

which is verifiable by experience or observation.
Theory Building A Process Of
Increasing Abstraction

Increasingly more abstract

Theories

Propositions

Concepts

Observation of objects
and events (reality )
 Concepts are Abstractions of
Reality
Abstract CONCEPTS
Level

Empirical OBSERVATION OF OBJECTS

Level AND EVENTS (REALITY)
 Scientific Method
The use of a set of prescribed procedures for
establishing and connecting theoretical
statements about events and for predicting
events yet unknown.
 Proposition at Abstract Level

Concept A Concept B
(Reinforcement) (Habits)

Hypothesis at Empirical Level

Dollar bonus for

sales volume Always makes
over quota four sales calls
a day
Research Propositions and Hypotheses

Once the concepts of interest have been identified, a

researcher is interested in the relationship among these
concepts.
Propositions are statements concerned with the relationships
among concepts. A proposition explains the logical linkage
among certain concepts by asserting a universal connection
between concepts.
For example, we might propose that treating our employees
better will make them more loyal employees.
This is certainly a logical link between managerial actions and
employee reactions, but is quite general and not really testable
in its current form.
Research Propositions and Hypotheses
• A hypothesis is a proposition that is empirically testable.
It is an empirical statement concerned with the relationship
among variables.
1. A sales manager may hypothesize that the salespeople who
are highest in product knowledge will be the most
productive.
2. An advertising manager may hypothesize that if
consumers’ attitudes toward a product change in a positive
direction, there will be an increase in consumption of the
product.
3. A human resource manager may hypothesize that job
candidates with certain majors will be more successful
employees.
Research Propositions and Hypotheses
 Research Propositions and Hypotheses
• A variable is anything that may assume different
numerical values.
Exhibit 3.3 shows that the hypothesis “Increasing retirement
benefits will reduce intention to leave the organization” is an
empirical counterpart of this proposition.
Retirement benefits and intention to leave are variables, reflecting
the concepts of employee treatment and employee
loyalty.
• When the data are consistent with a hypothesis, we say the
hypothesis is supported.
• When the data are inconsistent with a hypothesis, we say the
hypothesis is not supported.
 Theory Building
Deductive Reasoning
Deductive reasoning is the logical process of deriving a conclusion
about a specific instance based on a known general premise or
something known to be true.
For example, while you might occasionally have doubts, we know that
all business professors are human beings. If we also know that Barry
Babin is a business professor, then we can deduce that Barry Babin is a
human being..
We know that all managers are human beings.
If we also know that John Smith is a manager,
then we can deduce that John Smith is a human being.
 Theory Building
Inductive Reasoning
• The logical process of establishing a
general proposition on the basis of
observation of particular facts.
– All managers that have ever been seen are
human beings;
– therefore all managers are human beings.
 The Scientific Method:
An Overview

Assess Formulate Statement

Design
relevant concepts & of
research
existing Propositions Hypotheses
knowledge

Acquire Analyze & Provide

empirical evaluate explanation-
data data state new
problem
 Questions for Review and
Critical Thinking
• How do concepts differ from variables?
• Compare and contrast deductive logic with
inductive logic. Give an example of both.
• Find another definition of theory.
• How do propositions and hypotheses differ?